Are Yacht Clubs "Members Only", or an "IRS UBI Facility"?

Are Yacht Clubs "Members Only", or an "IRS UBI Facility"?

For three years I have not reported directly on Yacht Clubs. My goal has been to explain the easy, affordable and open ways to get into sailing. All Yacht Clubs are open to new members and most are very affordable, much more affordable than you would ever imagine.

But why are they closed to the general public?  Why are they "members only?"  Isn't society all about inclusiveness today, and open to everyone?

These questions don't apply just to yacht clubs, it applies just as much to country clubs, golf clubs, auto clubs, and airplane clubs.  It all falls to the Federal Internal Revenue Service Laws on Not-For-Profit (NFP) corporations.

You see, the IRS limits the revenue from non-members to 15% of all revenue the club collects during the year.  Clubs collect money from non-members when they invite them to participate in their regattas in entry fees, regatta clothing, food, beverage, or come to a seminar on maritime author, celestial navigation, and renting their docks to transient boaters from around the world.  And when all is done, it doesn't leave much cushion to connect to the general public otherwise.

According to the IRS, non-member revenue is called "Unrelated Business Income" or "UBI."  If a club exceeds the 15% maximum, the IRS will convert them to a for-profit, which becomes a huge mess in seconds flat.  So they are very mindful not to exceed this limit and monitor it closely.

YC1This makes them "private clubs" which is no different than your "private home."  Being a member means that you have a home away from home.  You sure don't leave the door to your house open allowing the general public to walk through at will (and protect your belongings) and a club is no different.

The NFP laws are designed so that a club is to service its members, and to gain new members it is to do it through organic growth through its existing membership base.  Old members, invite new members to join.  The IRS does not allow a club to advertise membership - "Join today and get a free set of tires!"

As a sailor, or boat owner, there is no requirement to join a yacht club, but when you own a boat in a harbor, or are crewing and coming in after a sweaty day on the water, the amenities of a club do come in handy.  The club may have storage lockers for boat gear, showers, head, bar, food service, parties, docks, on land boat storage, cranes, education opportunities and networking with either solutions for something that might not be working well on your boat, or to engage in business with one another.

There may be up to four types of payments when joining and being a member of a yacht club that you should be aware of and investigate:

1. Non-Refundable One-Time Initiation Fee: As many before you invested in land and buildings, this is your buy-in to make up for that.  These are not "equity" memberships, you don't own a portion of the land or buildings, it's just you paying for your share of what is already there.   Commonly these initiation fees are accumulated in a separate account and spent on future renovations, additions, or land purchases.

2. Annual Dues: This pays for employees, maintenance, upgrades to the facilities, lights, heat, water, insurance, licenses, taxes, etc.

3. Monthly Minimums: These are rare, where you get charged a flat fee for food and beverage monthly whether you use it or not.  It becomes an incentive for you to visit the club and meet up with your fellow members.  It also offsets the cost of running a kitchen, whose audience is "members only."

4. Assessment: This is rarely used, and is available to any NFP member organization.  It is used for a financial shortfall.  I have seen it used three times.  The first and second was a remodeling project where once the walls and ceilings were opened, much of it was not to code (surprise!) and had to be brought up to code.  The budget did not contemplate this work and the overage had to be shared by the membership.  The third instance was a member who frivolously sued his club, and the club did not have insurance to defend themselves from this type of lawsuit.  Every year for 10 years the membership was assessed a nominal amount to pay the ongoing legal bills.  Of course they won the lawsuits, they were frivolous, but there is no way to recover attorney's fees.

It all sounds like owning a second home doesn't it?  It is this way because while many can own and afford a boat, few can also own waterfront property to sail it from.  By collaborating with people of similar interests, you end up with that waterfront property you share with others affordably.

Some clubs have a full service staff, other clubs are "volunteer clubs" where the members are expected to help with facility maintenance hands-on.

  • One volunteer club in Chicago has a one-time $300 initiation fee and $650 annual dues for boat owners. If you don't own a boat, there is no initiation fee, and $300 annual dues.
  • Another volunteer club has a one-time $400 initiation fee, and $560 annual dues.
  • Another volunteer club has $150 annual dues.
  • Another volunteer club has a one-time initiation fee of $150 and annual dues of $450.

Stepping up to a club with employees, bar, and food service changes the dynamics quickly.

  • This club, as a boat owner has a $1,500 initiation fee, and $1,320 of annual dues.
  • If you are crew without owning a boat, there is no initiation fee, and $300 of annual dues.
  • This club has monthly minimums of $125 a month April - October, and $80 a month November - March.

With nine brick and mortar yacht clubs in Chicago, are you shocked ?  I hope you are.  Sailing is affordable.  You will struggle to find the one-percenters, but you will find most members earn their money with a W-2 just like you do.

Half of the clubs in the U.S. are what are called "Paper Clubs."  They have no facility, and exist only on paper.  They meet at bars, meeting halls, fire departments, banquet halls and the like in order to share the nautical arts.  Commonly joining a club like this is under $100 a year.

Now after the complicated explanation of what is involved in IRS UBI Facilities, aka Yacht Clubs, the real point is to become a member, to participate in the parties, to join committees, to share in the nautical arts, and mostly to have a lot of fun!

 

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